Audit finds possible 'pension spiking' in Montebello [Updated]

The audit found that a breakdown in controls and internal communication might have led to "pension spiking" in the case of at least one city official.

In March 2007, Montebello City Council members voted to fire City Administrator Richard Torres.

Torres contested the firing and the city's Human Resources Department never took him off the payroll, apparently because it was never told to stop paying him. He continued to receive his salary for nearly a year, even after the council approved a final severance agreement in November 2007. A new City Council majority brought in by a recall election that year voted to "rehire" Torres with a 49% raise, bringing his salary to nearly $200,000 a year.

The combined effect was to increase his pension by more than $4,000 a month when he retired in 2009, according to an audit released Wednesday by state Controller John Chiang.

Chiang called it a case of possible "pension spiking" and said he had asked the California Public Employees' Retirement System to investigate. The city said in its response that officials were working with CalPERS to rectify the "deficiently reported earnings." Torres could not be immediately reached for comment.

[Updated at 2:40 p.m., Dec. 28: Torres said he was stunned by the controller’s allegations.

He said his firing was not contested, but held up by city officials who lagged in signing his termination agreement, which included 18 months of severance pay.

Torres said the salary he continued tp receive was supposed to be deducted from the severance payment when he eventually got it. Torres said he ultimately forfeited the full severance due to him when he was rehired.

"I had 18 months' severance due. I got seven months instead, and I left the rest on the table because I was happy to be rehired," he said.

Torres also contested the idea that the pay raise was intended to spike his pension. He said a salary survey conducted by the city determined that his previous salary was exceptionally low.]

The handling of Torres "termination" was just one of many failures of financial controls in Montebello identified in Chiang's final audit of the troubled city.

The audit also found that the city mishandled other employees' retirements. In 2006, Community Development Director Ruben Lopez resigned under pressure and the city agreed to pay him 12 months' severance, which they included in calculating his pension. CalPERS rules do not allow severance payments to count toward retirement benefits, and in 2007 state officials told the city to reverse the credits. City officials ignored the instruction until this summer, when auditors from the controller's office pointed it out.

The city's response to the audit said the erroneously reported compensation had since been corrected with CalPERS.

Other problems included loose control of petty cash, failure to accurately report employee salaries to the Internal Revenue Service, and "systemic" problems in its bookkeeping, including a failure to balance city statements for nearly a year. In fact, out of 74 accounting standards that cities should follow, the controller found that Montebello practiced only eight, "opening the door to waste, fraud and abuse," according to Chiang's spokesman.

"While the roots of Montebello's problems are different from Bell's, they both share the common trouble of having little or, at times, no accountability in their spending of public dollars," he said.

Previous audits this fall said the city had mishandled $31 million and spent money intended to improve poor neighborhoods on golf games, travel for city officials and a "business lunch" at Chuck E. Cheese. Chiang's auditors also found that city officials allowed an engineering firm at the center of a federal bribery investigation to award about $2 million in city funds to itself.

City officials had vigorously contested some of the findings of previous audits and accused Chiang of playing politics. But the city largely agreed with the findings of the latest audit and said it was working to correct the issues.

Interim City Adminstrator Larry Kosmont said the city was aware of the long list of problems with its controls.

"I didn't see corruption in that, but I saw a lot of improper and antiquated processes," he said.

Kosmont said officials were already moving to correct many of the issues, including working with CalPERS to rectify the pension issues, working to revamp the bidding process for engineering contracts, installing a new cash management module and recovering funds that the controller's previous audit found had been improperly spent.

"The next year will be an important year for Montebello to find its way back," he said.

Kosmont said that once the pension issues are worked out with CalPERS, city officials will look at whether they should try to recoup the money that was paid out to Torres after his firing.